GBP: Focus on Tomorrow's Wage Data as Bank of England Meeting Approaches

GBP: Tomorrow's wage data are key

With a month to go until the next Bank of England meeting, policymakers will be watching regular pay growth (average earnings excluding bonuses) tomorrow, which has picked up again lately. The question is whether that’s solely down to firms implementing the 10% increase in the National Living Wage, or a genuine increase in pay pressures. Assuming it’s at least partly the former, we think we could get a fractional fall in the annual rate of pay growth in the May reading. Unless the CPI shocks on the upside again on July 19, then the Bank of England could be happy with a 25bp hike in August.

Markets are pricing in 44bp for August and 145bp in total, which leaves ample room for a dovish repricing to hit sterling should data surprise on the downside. EUR/GBP is trading around recent lows and may be facing some upside risks to 0.8600+ this week.